Over $ 7 billion of venture capital was invested in startups last year, leading to an upsurge in the entrepreneurial boom sweeping across the country.

Over $ 7 billion of venture capital was invested in startups last year, leading to an upsurge in the entrepreneurial boom sweeping across the country.

Amid the holiday festivities, it was news that was easy to miss. But those who caught it, will have noted the ominous tone to reports of online photography startup Canvera settling for a three-fold decrease in its value during a funding round at the end of December. The so called “down-round,” a spectre that startups strive to avoid at all cost, is here, and could haunt a profligate few. To be sure, over $ 7 billion of venture capital was invested in startups last year, leading to an upsurge in the entrepreneurial boom sweeping across the country.

But this year, while seed and first round funding will continue to be plentiful, money for growth will be hard to come by for companies that do not rein in costs. What began as murmurs of discontent--from investors unhappy with the high spending and low-earning model adopted by some companies -- is now reaching a crescendo.

Canvera’s fate makes it clear that tough talk won’t be directed only at celebrated unicorns -- companies valued at over $ 1 billion -- that are burning cash in search of greater growth, but also at smaller ventures. More investors will look to purchase shares at a lower price than what was paid in an earlier funding round, unless cash-guzzling startups demonstrate a reduction in costs and an uptick in profits.

It can be argued that such a move can only be good for business in the long-term. But the pain of a down round is felt by more people than just investors who overpaid in the past. Typically when the value of a startup drops, a significant amount of money goes off the table for founders and employees. It is no wonder that entrepreneurs resist it and will do all that they can to stave off such an eventuality.

Expect to see no repeats of the big-name hiring sprees and fat paycheques doled out in 2015 by the front runners in India’s startup boom. This year, in contrast, talk of high-profile exits are already growing louder as reality pinches. Hundreds have already been affected at startups like Housing.com. Elsewhere, anger over pink slips and pay cuts has led to strife and violence with founders--some still in their twenties--struggling to deal with such turmoil.

That said, now is also the opportunity for those building businesses for the long-term to step up their game. Classic venture capital-with an eye on the long term is back in fashion. Investors with large pools of capital are eager to deploy it across technology-based businesses that address both local and global markets.

Companies that address specific needs of Indian users across sectors from financial services to education and healthcare will find backers aplenty. As will those looking to develop cutting–edge technology for enterprises, new forms of gaming, entertainment or content delivery.

As Startup India girds up for the challenge of building sustainable businesses, there is need for calm minds, steely resolve and yes, abundant hope.

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